Penny stocks can be risker than most, as they often bring a fair bit of volatility. But, as part of a diversified portfolio, I think they can add a bit of excitement.
And right now, I’m seeing quite a few that look like they might be cheap. I reckon these three deserve a closer look.
Cheap Lithium
My first pick faces a bit of extra risk, on top of penny stock volatility. It’s Kodal Minerals (LSE: KOD), and its share price is down below a penny.
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That can mean a wider spread between buying and selling prices, so we’d need an even bigger gain just to break even.
But, after a big slump in the 2020 stock market crash, the Kodal share price has spiked up a few times. Right now, it’s come down from a recent high. And with a market-cap of £92m, I see this as a possible buy now.
Kodal is currently developing a lithium asset in Mali, and I think investors have taken their eyes off lithium stocks a bit.
There’s no profit yet, so valuation is tricky. But the company has net cash. And I think we could be in for an interesting few years.
Walls and floors
I’ve been watching Topps Tiles (LSE: TPT) on and off this year, and it’s a bit unusual for a penny stock.
It’s profitable, has a modest forward valuation, and it even pays a dividend. It does only just squeeze under the £100m penny stock limit, mind, with a £99m market cap.
Forecasts put the stock on a price-to-earnings (P/E) ratio of 14 for 2024, which might not look ultra-cheap on the face of it.
But strong earnings growth down for 2025 would drop it to under 10. And with dividend yields of 7%, that could definitely be cheap.
In its last FY results, the company recorded its third year of record sales in a row. Demand has started to soften in the tail-end of 2023, though. So there’s some risk there.
But the board believes Topps is “well-positioned to continue to take market share.“
Another digger
Mining and commodities stocks do seem to be down right now. I expect that’s mainly down to the Chinese slowdown, and weakening demand.
But it’s a cyclical business, and we can make some nice cash if we buy when share prices are down. So, I’m including another miner in my three here.
This one is Anglo Asian Mining (LSE: AAZ). And it has a bit of a unique risk to it, as its operations are all in Azerbaijan. Know anything about the politics and financial regulation systems in Azerbaijan? Me neither.
Still, the share price has given up its recent bright spell, and it’s now down 35% in five years. But perhaps the most remarkable thing about this one is the dividend, forecast at a whopping 11%.
It looks like the company would struggle to cover that with earnings. But it’s focused on copper, and if demand for that should rise, we might see a nice earner here.
